6 Types of Auctions and What They’re Best For
Most people know the basics of an auction: an item is up for sale, people place bids, and the highest bidder wins. But what few people realize is that there are lots of different ways to approach this process. Sellers can set reserve prices, set minimum opening bids, and even turn down the highest bid if they want. It all depends on what type of auction you use.
To help you understand all the options you have with auctions, we’ll discuss six different types of auction and who they’re typically best suited for.
Reserve auctions are often used for selling houses or land. In this type of auction, a minimum acceptable price (the reserve price) is set by the seller before anything is listed. This price usually isn’t disclosed to buyers; it’s just used as a benchmark for the seller and the auction company to know your desired price. The reserve price can even change throughout the auction based on response to the auctions marketing.
In a reserve auction, the bidding process will start as normal, with an opening bid by the auction company. You as the seller will have the right to accept or reject the final bid, even if it’s the highest offer. Sellers prefer this method for selling real estate because it offers them the most protection and allows them to ensure they get at least their minimum desired price.
Absolute auctions are a method in which the highest bidder wins regardless of their offer. There is no reserve price or minimum bid in this kind of auction.
It might sound risky, but for people selling something in high demand, it’s a great way to get the highest price for your item. Competitive bidding will drive up the price and secure a higher final bid than selling by more traditional routes. Buyers are also more likely to bid in this type of auction because they know that if they offer the highest bid, they’ll be able to purchase the item.
Although not the most popular type for real estate auctions, this type of auction can help you collect a higher price for your land sales. Although it’s high risk, it can also be high reward, so you just have to be certain what you own is valuable to a wide market.
Sealed Bid Auction
Sealed bid auctions offer a more controlled environment and less competition among potential buyers. All interested buyers submit their best offer in a sealed envelope (or private email for online auctions) and you and the auction company will evaluate them one by one.
As the seller, you can do one of two things with the bids:
- Accept the highest offer as the winning bid
- Reject all the offers and ask for “the highest and best bids” from the two or three highest bidders. This is commonly done when you’re hoping to raise the price just a little more.
This type of auction is a good option if you’re selling a home or land that doesn’t have a high market value or has potentially limited interest, but you want to avoid it being labeled as a “low value, low interest” property. The sealed bids keep people’s offers secret, which means others aren’t influenced by what they see their competitors offering. Each person offers what they feel the property is worth and you have the opportunity to agree and accept or move on to the next buyer.
These auctions are a common type of land auction and recommended for people who are selling large areas of farmland. Multi-parcel auctions include dividing the land into multiple tracts or parcels and selling each one individually, in groups of parcels, or as the entire tract. Modern online bidding technology is usually required for this type of auction.
Multi-parcel auctions can take some time to set up because you have to meet with engineers familiar with land division and sometimes get a surveyor involved pre-auction. Property divisions generally require approval of a county’s zoning or planning office, but they also often sell your property quicker.
This type of auction helps to drive competition and increase your overall sales price when you divide your land into more manageable chunks. Divided properties tend to attract more potential bidders because more people are interested and capable of buying small parcels than large parcels.
Prospective buyers will be willing to pay more for the piece as a smaller, standalone tract than they would as part of an entire property. So after all is said and done, you might net more than if you’d sold it as a single parcel.
For example, your entire property might be worth $100,000. But if you divide it into 10 tracts that you sell for $20,000 each, you’ve just doubled your value.
Live Outcry Auction
Live auctions are what comes to mind for most people when they think about auctions. An Auctioneer calling for bids, also known as “crying bids” to a room full of bidders. Items come up for bid one by one and bids grow higher and higher until some lucky person wins.
This is not how most people sell their property with an auction. Modern auctions tend to either be online only or at least simulcast with live bidding and online incorporated. Although live outcry auctions do still occur, they’ve fallen out of practice in the last few decades. Mostly because technology offers new, more convenient ways to manage auctions.
Online auctions are becoming the most popular type of auction, not only because they’re easier to market and manage but also because they can support any auction type. You can see bids being placed in real-time, just like at an in-person auction, but you have the added advantage of reaching a much wider audience.
For these auctions, sellers work with qualified auction companies to list their land, property, or assets on the company’s website and through other listing services. Every listing comes with a comprehensive information packet and buyers are required to agree to the terms and conditions of the auction before placing their bid. This ensures that everyone bidding on your property or items is ready to make a purchase if they’re the winning bidder.
Online auctions are by far the easiest and most reliable way to manage an auction, which is why it’s the primary way we approach auctions for our clients. At Weeks Auction Group, we can help you sell your property, land, or assets through any of these types of auction plus a few more. Reach out to us today to learn which auction fits your needs and how to get started.